Factset Research Systems Inc (FDS) — Q1 2017 Earnings Call Transcript

Thank you, operator. Good morning and thanks to all of you for participating today. Welcome to FactSet’s first quarter 2016 earnings conference call. This conference call is being transcribed in real-time by FactSet CallStreet service and is being broadcast live via the Internet at factset.com. A replay of this call will also be available on our website. Our call will contain forward-looking statements reflecting management’s expectations based on currently available information. Actual results may differ materially. More information about factors that could affect FactSet’s business and financial results can be found in FactSet’s filings with the SEC. Annual Subscription Value, or ASV, is a key metric for FactSet. Please recall that ASV is a snapshot view of client subscriptions and represents our forward-looking revenues for the next 12 months. Lastly, FactSet undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise. Joining me today are Phil Snow, Chief Executive Officer and Maurizio Nicolelli, Chief Financial Officer. And now, I would like to turn the discussion over to Phil.

Thanks Rachel, good morning everyone and welcome to today's call. Over time, FactSet has proven to have an extraordinarily resilient business model. We believe we are able to remain successful because we evolve, innovate, and excel at client service and in partnering with our clients. The first quarter was challenging this year but we executed well on both the top and bottom line. ASV during the quarter grew 7.9% organically to 1.17 billion. Adjusted diluted EPS grew 18% to $1.75, well above our guidance of $1.68 to $1.72. Growth was sustained across all regions. We saw strength particularly in Asia Pac and EMEA with ASV from international operations growing 9.3% organically to $405 million. Our non-U.S. ASV now represents 34.6% of our total, up from 32.6% a year ago. We did continue to see some cost pressure within the client base and when compared to Q1 of last year, we saw an uptick in firm closures. That being said, our growth this quarter was broadly distributed across a number of segments and user workflows. Let me highlight a few areas. First, just over a year into our acquisition, Portware continues to shine. With advanced analytics and cutting-edge technology we’ve grown market share in the EMS space. Portware had a strong quarter with accelerated client trading volumes and the addition of new clients. Second, our multi-asset class analytic solutions keep gaining momentum. We closed several significant deals this quarter and we continue to see strong growth in the risk and portfolio services. This product segment is a focused area of investment and we expect to see further positive results of our efforts as we move through fiscal year 2017. As the investment community moves increasingly towards multi-asset class instruments, our offerings are advancing to meet their needs. Third, we saw a healthy deployment across wealth management in Q1. Our success in wealth stems from our ability to address the advanced portfolio analytics and multi-asset class research and analysis needs of our wealth management clients serving high and ultra-high-net-worth investors. We are picking up market share and wealth by offering superior functionality while simultaneously helping firms lower their costs. While we had a strong performance in Q1, we’re not satisfied. Market pressures demand new solutions, and this is exactly why we invest to capitalize on the new opportunities ahead. We continue to evolve our company to build out solutions across more client workflows. This quarter we did so through both innovation and acquisition. This quarter we released FDS Web, a web-based version of the FactSet workstation. The significant investments we have made over the last few years in evolving our technology stack have made this release possible. FDS Web offers many of the same reports and features of the installed workstation that are readily and easily accessible over the web. There is more to come here; we’re really excited about what this means for our clients in terms of speed, mobility, and opening up new users. In addition, we’ve released several new enhancements to our FactSet Reviewer industry classification system which allows users to better monitor their exposure and understand their risk and performance. While innovation is critical to our evolution, FactSet has been successfully using strategic acquisitions to grow our business further and provide more comprehensive solutions for our clients' core workflows. The acquisition of CYMBA Technologies and Vermilion Software have extended our solutions across the enterprise workflow of our clients. CYMBA is a provider of high-performance multi-asset class investment management solutions for front office fund management and trading teams. We welcome the CYMBA team at the end of September. Vermilion is a leading global provider of client reporting and communication software and services to the financial services industry. Client reporting is a rapidly growing area of the market as regulatory requirements increase. Vermilion’s flagship product, the Vermilion Reporting Suite, is an enterprise solution that provides transparency through the entire client reporting process. We completed this acquisition in early November. While we anticipate that both CYMBA and Vermilion will expand our depth of involvement with our current clients, we are already seeing positive signs that these acquisitions will produce growth and the extension into new clients. In Q1 we saw the beginnings of revenue synergies as cross-sell opportunities arose from our new acquisitions. FactSet's mission is to solve our clients’ greatest challenges with the power of collaboration. In Q1 we sought and found new ways to do that, and as we look ahead to Q2, we are confident in our opportunity to continue to grow ASV and to generate high levels of profitability, and believe FactSet is well-positioned to outperform the overall market. Let me now turn it over to Maurizio who will give a more detailed look into our first quarter performance as well as our guidance for Q2.

Thank you Phil and hello to everyone on the call. In the first quarter, we continued to grow ASV and EPS while investing for future growth through our M&A activities. Our ability to solve our clients’ needs has been a core strength of FactSet over the years and continues to drive us forward. Let's now go through the first quarter results. Revenues in the first quarter were $288 million. Excluding acquired revenue from the recent acquisitions, the effects of foreign currency, and revenue related to the Market Metrics business in all periods presented, organic revenues grew 8.4% over the last year. During the just completed first quarter, U.S. revenues grew to $190.6 million. Excluding acquired revenues and revenue related to the sold Market Metrics business, organic revenues in the U.S. were up 7.4% compared to the year-ago first quarter. Non-U.S. revenues increased to $97.5 million. Excluding foreign currency, acquired revenues, and revenue related to the sold Market Metrics business, the international growth rate was 11%. This growth rate breaks down to 9.9% from Europe and 14.3% from Asia-Pacific respectively. Included in our first quarter results was a non-recurring expense totaling $954,000 resulting from the CYMBA and Vermilion acquisition. These expenses were for professional fees, local taxes paid, and also other acquisition-related costs. Adjusted operating income grew to up 95 million excluding $3.8 million of intangible asset amortization and the $954,000 of non-recurring acquisition cost. Adjusted net income, which excludes the non-recurring acquisition-related cost and intangible asset amortization, increased 12% to $70.1 million, while adjusted diluted EPS grew 18% to $1.75. Now let’s take a look at operating expenses. Operating expenses for the first quarter totaled $197.7 million. Our adjusted operating margin, excluding $954,000 in acquisition cost and $3.8 million of intangible asset amortization, was 33% this quarter, down 40 basis points from the just completed fourth quarter. The two acquisitions reduced our adjusted operating margin by 20 basis points during the first quarter. First quarter cost of services expressed as a percentage of revenues increased by 180 basis points compared to the year-ago period. The increase was driven by higher compensation and amortization of intangible assets. Employee compensation expense grew due to headcount expansion in India and the Philippines and the addition of Vermilion and CYMBA employees. The increase in amortization of intangible assets primarily relates to the two acquisitions during the first quarter. SG&A expenses expressed as a percentage of revenues was down 80 basis points compared to the year-ago first quarter. The decline was the result of lower compensation expenses, partially offset by higher marketing expenses and increased local tax costs. Employee compensation is lower due to the sale of the Market Metrics business in the fourth quarter of fiscal 2016. Marketing costs increased due to higher branding and advertising campaigns, while local tax costs rose due to the two acquisitions during the quarter. At the end of our first fiscal quarter, we had 8,713 employees. Excluding employees added from the CYMBA and Vermilion acquisitions and employees in the sold Market Metrics business, headcount increased 10.5% from a year ago. Effective September 1, 2016, we realigned certain assets of our global operations from FactSet Research Systems, Inc., our U.S. parent company to FactSet UK Limited, our UK operating company to better position us to serve our growing client base outside the United States. This realignment allows us to implement strategic corporate objectives while achieving significant operations and financial efficiencies. This realignment is structured to complement our increasing global growth and reach. The realignment was not announced in September as we were actively implementing the change internally and also with our international client base. As a result of the realignment and the reenactment of the Federal R&D Income Tax credit, our effective tax rate declined 550 basis points to 25.9% in the first quarter of fiscal 2017 compared to 31.4% in the prior year period. Free cash flow during the last three months was $39 million, a decrease of $18 million from the same period last year. We defined free cash flow as cash generated from operations less capital spending. The $18 million decrease was the result of higher client receivables and the timing of U.S. payroll processed during the period. Our DSOs worked 34 days at the end of the first quarter compared to 32 days in the prior year period. As part of the realignment, the majority of our international clients are now invoiced through our UK entity. This change delayed payments from some clients and drove up client receivables less than 60 days outstanding. The timing of when U.S. salaries were paid in November 2016 compared to the prior year period also lowered our free cash flow. Our cash and investments balance was $194 million, down $58 million during the quarter. Our diluted weighted average shares decreased by 572,000 shares primarily as a result of our open market repurchase activity and the completion of our accelerated share repurchase program. During the first quarter, we repurchased 505,000 shares of FactSet common stock under our existing share repurchase program at an average price of $157 per share. In addition, the final settlement of our previously disclosed ASR program occurred during the first quarter. Now let’s turn to our guidance for the second quarter of fiscal 2017. For the fiscal second quarter, we expect revenues will range between $293 million and $298 million. Please note that we typically deploy our annual price increase every January. ASV from our annual price increase is projected to be $10 million compared to $9.4 million a year ago. GAAP operating margin should range between 31% and 32%, while adjusted operating margin should range between 32.5% and 33.5%. We expect our annual effective tax rate to range between 25.5% and 26.5%. GAAP EPS is expected to range between $1.70 and $1.74. Adjusted EPS is expected to range between $1.78 and $1.82. The midpoint of this range suggests a 13% year-over-year adjusted EPS growth increase. In summary, we are pleased to see our business perform well in this difficult market environment. Our first quarter performance metrics including 8% organic ASV growth and 18% adjusted EPS growth highlight the strength of our business model. In looking forward to the second quarter, the midpoint of our guidance suggests 7% organic revenue growth and 13% adjusted EPS growth. As we navigate through this market environment, we are confident in our opportunity to grow ASV and generate high levels of profitability.

Hi, I think you talked about some of the strengths in your opening remarks but could you just give us an update on some of the areas that are weak and have you seen any changes there?

Sure Joe, hi it's Phil Snow. So, as I mentioned, we are seeing growth and strength in wealth. We’re also seeing great momentum in our analytics business. I would say if I was to highlight one area that was weaker versus the same quarter last year, it would be banking but I do want to remind everyone that Q1 is traditionally light at the banking as our clients rationalize headcount going into the end of the year. Within banking, we did see some pricing pressure focusing on headcount and costs, and we are seeing capital IQ and others bundling their products in some cases. Clients are not happy about that and the good thing is they are coming to us and asking us how we can help, but that would be the one area I would highlight in terms of weakness.

Okay, and then on the margin profile I know you gave some quarterly guidance for next quarter but what’s the long-term outlook there, has that changed at all and obviously you’ve talked about some dilution with some recent acquisitions?

Hey Joe, it is Maurizio. So we continue to manage our adjusted operating margin to right around 32.5% to 33.5% and that is consistent with the last five quarters. If I was to look out over the next two to three quarters, I think we would be very consistent with that range and then going forward we would see something similar to that, potentially with some leverage over one, two, or three years.

Got it, okay and then the last one from me on the free cash flow side and the tax rates. From a free cash flow front do you expect that to sort of normalize over the next couple of quarters and how should we think about the new tax rate, how long will that last? Thanks.

Yes, so free cash flow was down $18 million this quarter. It was really driven by the change in the realignment to our FactSet UK. Now clients are being billed and invoiced and contracted through the UK and that created some delays in client payments. We really see that as very temporary and normalizing in the next three months going forward. On the tax rate, the tax rate now has the new normal for our tax rate now is our range of 25.5% to 26.5% and we don’t see that materially changing during the rest of the fiscal year.

Hi, good morning. Thank you very much for taking my questions. Just I want to ask you a couple of housekeeping items and then just get a little bit more into the acquisitions. Around the revenue guidance what is the organic growth implied in the revenue guidance either at the midpoint or the two ends, could you help me with that Maurizio?

Okay, the midpoint on our revenue guidance is right around 7% going forward.

Okay, and then are you able to parse out how much in the ASV on the table, the very last table in the press release how much of that was Portware versus the two acquisitions that were completed this quarter?

So the two acquisitions added $15 million in ASV during the quarter and that is acquired revenue. Portware is now embedded within our overall ASV number and we don’t break that out.

Okay, I understand. Can you provide more details on the acquisitions? It appears that the Vermilion business aligns well with your publishing segment, which you emphasized during an Analyst Day a few years back. Are there gaps in your current business that this acquisition addresses? Additionally, regarding CYMBA, you mentioned aspects of the order management system. Can you explain what the business specifically does? When I visit their website, it seems like they offer a wide range of services but have a relatively small employee count.

Sure, hey Shlomo, this is Phil Snow. Let me start with Vermilion. Vermilion is a sophisticated, top-tier enterprise client reporting solution. The current range of publishing solutions offered by FactSet enhances our portfolio and audit reports. We develop custom reports for our clients using this approach. Vermilion provides a broader solution, enabling clients to incorporate various types of data, giving much greater flexibility regarding the reports it can generate. It nicely complements our existing offerings. I would compare it to the difference between code red and the FactSet IRM solution. By integrating both, we can offer more solutions to our clients, especially in the client service workflow segment of the investment lifecycle, which is gaining momentum. Regarding CYMBA, we're very enthusiastic about it. It addresses a gap that existed with the merger of FactSet and Portware. CYMBA includes order management capabilities, along with robust pre-and post-trade compliance rules embedded in its system. We believe that pairing CYMBA with the FactSet workstation completes the investment lifecycle for us. While CYMBA has a small team, it is crucial for filling a significant gap that could have been developed internally, but acquiring it allows us to accelerate our progress, and we're eager about the long-term potential. They offer an excellent solution, though like many small companies, they may face skepticism from large investment managers questioning their longevity. Now that CYMBA is part of FactSet, a well-respected entity, we can cross-sell it effectively, and we're optimistic about the growth opportunities it presents.

On their own, were these companies growing at growth rates that were in excess of FactSet’s growth rates?

Definitely.

And then I am going to leave off at this at least for now. The sales environment in general, the markets have moved up a lot after the presidential elections. Are you seeing any of that translate into improved behavior from your clients in terms of purchasing patterns or is it really that’s not really translating into that?

It’s hard to predict honestly if it will. I think we’ll see the effects of that later. It’s not something that given our sales cycle, I think we would see immediately. We did see some decisions getting pushed out a little bit further over the last few months, and we’re hoping that our close rate will improve.

Alright, thank you very much.

Alright, thank you.

Hi, this is actually Greg calling on for Manav. I just wanted to ask about your user count growth in the first quarter which looks pretty good relative to the last couple of 1Qs. First off, can you confirm that that’s all organic and then maybe some color around the breakdown between base business growth, competitive wins, and then some of the closures you have been seeing?

There is a lot in there Greg. I’ll start with yes, it was all organic users that grew. I’ll go back to the comments on wealth; we saw some really nice closures in Europe and Asia with some private banking deployment. So those were pretty large closures. Can you remind me of the other three questions that you asked?

Yes, I was just asking on the breakdown between base business growth, so additions with the existing customers and then you know how much impact you are seeing from closures from some of the smaller accounts that you’ve talked about?

Sure, so when we look at this Q1 versus last Q1, there was an uptick in firm closures which affected the relative number. We did see when you look at users no longer with firm, which typically means they’re moving somewhere else or potentially they are getting laid off, there was a small uptick there. But I’d like to steer you back to what we said many times, which is we firmly believe that our largest opportunity really is within the biggest clients that we already have today. So we love to get new names, but it is by no means the biggest piece of our business every quarter, nor is it the biggest long-term opportunity we have. So we’re really focused on having an enterprise solution for our clients and capturing that entire investment lifecycle of the trade.

Thanks for the update. I’d like to ask about the upcoming fiduciary standards rules and what feedback you’re receiving from your customers regarding this. Are there any solutions or services you offer to assist with these standards? I'm curious if Vermilion is relevant in this context, and any insights you can share would be appreciated.

We’re investigating into that. We are focused on regulatory as something that is important for us. We recognize it is a big opportunity, maybe that’s one we can follow up with you later.

Okay, that’s it for me. Thank you.

Hi, good morning. I was wondering if you can provide some additional color on just the dynamics going on the buyer side. I know you just mentioned the some closures and some headcount reductions but basically just in terms of you mentioned the largest opportunity being with your existing buyer side or biggest clients how is the progress going on cross-selling there and just what’s going on with buy side would be helpful?

Sure, I’ll touch on a couple of things. One is going back to the conversation about our enterprise clients; we are spending more time with our largest clients to understand their information technology landscape and assess the solutions they have or need assistance with. We are finding that these clients are very interested in discussing our recent acquisitions as they consider more comprehensive solutions. I would say it is still early in the cross-selling process, but it is something we are fully focused on.

Great, and also in the past you have spoken about potentially providing some additional disclosures around workstation versus non-workstation, or even just what percent fees make up, do you have any further thoughts on what you might provide and when you might consider providing it?

We are still evaluating that, Toni, and with the recent acquisitions that we have done, we are just taking the time that we need to make sure that if we are going to change how we report, that we do it in the best possible way and it is something that we can stick to for the future.

Understood and on just gross margins, they have come down a little bit over the last couple of quarters just, is not attributable to the acquisitions or are there other factors that could be driving that expense number?

Hi, Toni, this is Maurizio. The acquisition process has been challenging. Additionally, most of our new hiring is attributed to the cost of services, which slightly increases that percentage. However, ultimately, we've been managing the company at the operating margin level.

Okay, excellent and then one just last quick one, just after the geographic realignment should we expect that your British pound exposure will increase or no because you will still be dealing in U.S. dollars and it will just be more on the expense side? Appreciate all the time, thank you.

Yes, our invoicing declines has not changed. We still have well in the north of 95% of our clients being billed in U.S. dollars going forward. The realignment did not affect clients that way.

Thanks. Phil you mentioned strength in analytics but maybe you can describe non-terminal revenue growth across the four major products and I think last quarter you mentioned double-digit growth across your core products and just wanted to see if that was consistent this quarter?

We haven't provided that level of detail this quarter. In Q1, I noted that analytics performed very well. Traditionally, Q1 is not our largest quarter, so we don't consider it a key indicator from a data perspective or anything like that. It doesn't give us much clarity on those growth rates.

Okay, and then in terms of the sell-side slowdown, is this coming from a concentrated number of days or are you seeing it across the board?

That is a good question. I think we're seeing generally pressure across the sell-side in both the bigger firms and the middle market firms.

Got it, okay, thanks and just lastly, so if the new fiduciary rules around wealth management are implemented, just your thoughts on maybe the potential impact?

Yes, that's one that we will get back to you on again. We had that question earlier on the call.

Okay, sorry about that.

No problem, thanks.

Thanks, so Phil earlier you highlighted favorable peer gains and you talked about CapIQ maybe some customer dissatisfaction, can you just expand a little bit more on what you are seeing in terms of the competitive marketplace, it seems like both Bloomberg and Thompson maybe have stalled a little bit here, do you see some momentum from a share perspective?

So, I do, hey Peter thank you for the question. So, we are confident that we're outperforming on a relative basis in most segments of the market. So, I think you are right in sort of highlighting that the other firms are struggling. We are looking at different segments and we are very focused on who is our competitor in a particular segment. We view such a massive opportunity for us in the marketplace. We are just over a billion dollars and we know that the addressable market share for us is at least ten times that today. So we are just focused on what we can do the best with specific workflows against all of these discreet competitors. But I think you're correct in saying that if you look at all of their performance instead of what we’re hearing, that it is a challenging environment and we feel that we're the best positioned to execute on it now and for the future.

Great, thank you. So with 6% terminal growth and a little bit of pricing, it might imply that the desktop business is growing pretty much in line with these overall revenue performance which will then suggest that the analytics enterprise business is probably growing in a similar way, is that a fair assessment?

We have so many different types of user workflows. We might have 20 different types of clients that use FactSet and, you know, we don't price our product the same way that some of our competitors do. So it’s very difficult to look in and sort of draw meaningful conclusions on that. In some cases, if we have a very large wealth deployment the average price for that wealth deployment might be significantly lower than if you added a portfolio manager for example, even a medium-sized institutional asset manager.

Okay and then lastly for Maurizio the headcount has grown consistently a little bit faster than ASV growth for FactSet in recent years. That is a phenomenon we should expect to continue are there margin implications around that?

Right, so if you look at headcount growth ex doing the acquisitions and the Market Metrics being sold, our growth is around 10.5% but our growth in headcount has been higher in India and the Philippines where our cost of an employee is much less. So even though you see our employee growth being higher than revenue growth, from a dollar perspective, it's right in line slightly behind revenue growth.

Got it. Thank you guys.

Thank you.

Great, thank you. So on portfolio analytics I think you guys touched on a little bit, but it sounds like strong growth again. Can you just give us any color on the wins there? It sounds like there may be more switches from other providers and kind of new users who didn’t have the capability previously, can you just kind of confirm or talk about that a little bit?

Sure, hi it is Phil Snow. So, when we talk about our multi-asset class risk product, we’re talking about an enterprise solution there for our clients in the risk area. So we’re in competition sometimes with MSCI in that space, with BlackRock, with a whole bunch of different niche competitors. As we filled out the fixed income and more asset classes in there, it’s opened our abilities to do more than just equity risk for our clients. And it’s something that a lot of our clients are focused on in this environment. So we continue to invest there; we got a lot more that we’re going to be doing that's coming out throughout the year as I mentioned in my comments earlier. It’s an area of our business that we know is exceptionally important for our clients. One of the trends that we’re noticing in the marketplace, when I talk to heads of performance at a lot of the big buy-side shops, they want to see consistency in the data that they’re using for risk and performance and for portfolio analytics not just in the middle office but all the way through to the front office. And that’s something that we believe at FactSet we’re incredibly well poised to execute on and the opportunity for us that’s in the front office I believe is huge. By focusing on this area which is our core competency we can then build that out over time.

Okay thanks and what about just sort of the wins you are getting? Are you finding that they are switching from other providers or like sort of people?

Yeah, in many cases they’ll be switching from other providers. So I mean there are some out there that haven’t been invested in and are not getting better and that’s just something that we are pouring our efforts into. And we’ve got some great partners in that space as well that get more leverage by including their functionality on our system. So we’re not just building everything; we’re sort of creating this ecosystem that makes it easy for other analytics providers to integrate into FactSet and it is what we did originally, right. We were earlier the Switzerland of market data and fundamental estimate data, and now we are sort of getting into this environment where we can be that for a client when it comes to risk and analytics.

Great, thank you and then I guess I just apologize if I missed it, I mean could you just talk a little bit about how the fees business did during the quarter?

The fees business did okay. Part of our fees business is leveraged to our strategic partnerships and alliances group, so that's when we monetize data outside of FactSet. I am on the side of investment management and banking. And there was a lumpy loss this quarter; that is a lumpy business. We have big wins and we have big gains and big losses sometimes. And the fact that Q1 is traditionally a smaller quarter for us, there was one of those in there this quarter which dampened the fees growth. But I would say the fees growth within the core institutional Asset Management and banking business was very healthy.

Great, thanks a lot.

Sure.

Good morning everyone, I think most of my questions have been answered but just had a few follow-ups. Noting that web-based version of the workstation, where are you targeting that? Is that for smaller firms or the retail market and will that have a lower price point and reduced functionality than the full workstation?

Yes, that is a great question. So, not necessarily. If we are solving the exact same workflow for the same type of clients, it is the same value. We would price it the same way, but there have been some users over the years that have essentially said just for ease of use purposes and even for costs they require a web-based version. A good example of that is senior bankers. So, in banking we have always been very well-penetrated in investment banking and research, and we have been told if we developed a web-based product that that would be the best way to essentially get on to the desk of senior bankers. There are a lot of hedge funds out there that much prefer a web-based product. Private equity firms, there's a lot of opportunity and if you really want a more elegant mobile environment, web is the way to go. Even for our caller user base, the speed of the product is faster, and navigating it is easier. We believe there's going to be a lot of good effects as we continue to build out more functionality in the web-based version. And all of this is possible because we made a massive investment in our technology stack over the last five years going from mainframes to this more distributed Linux architecture. It's one of the really positive things that has come about as part of the effort.

That's helpful. Thanks. And then you noted a little bit higher trading volume, equity trading volume impacted in the period post-election, was that enough to add a million or two of revenue or not so much?

It definitely helped to look at both where and how we transfer that product; it's a combination of license fees, professional fees, and trading volumes, so it is the minimum. However, the increase in trading volumes over the last couple of months certainly contributed positively.

Okay and then just one housekeeping question, Maurizio what was the exact acquired revenue in the quarter, apologize if the question is already answered?

Yeah, the total was $15 million.

That was the ASV, what was the actual revenue in the quarter itself?

Revenue included in the 288 million was less than $1 million. So it had a minimal effect.

Alright, thank you very much.

Yes, thanks. Just maybe a couple of financial-type questions, one I guess given ASV growth of 8% in the quarter, why is 7% organic revenue growth? Usually there's a tighter connection with 7% being your guidance for Q2, sorry?

Our ASV and revenue projection at the midpoint is around 7%, which is what we're estimating today. There is a range that includes both higher and lower figures, but essentially we are projecting approximately 7% organic growth.

Right, okay. And I guess and then tax-wise I get that it has obviously come down and given some of the changes you made to the extent you have had the time I guess or a capability to look at destination-based tax systems and some of the proposals that are being discussed in Washington, how would those impact you to the extent you thought through those things and how you have kind of structured the business going forward here?

So we have broken out the business between U.S. and international. Our UK entity is responsible for our international business now going forward both operationally and financially. We still tax almost 70% of our income here in the U.S. so if tax legislation comes out and it lowers the tax rates here in the U.S., that will be just an incremental benefit to FactSet. But overall, we made this change in order to better serve our client base internationally and we don’t see going back on that strategy in the future.

Okay, alright, thank you.

Good morning, thank you. Phil you had mentioned earlier in the call CapIQ and SNL bundling their product and clients asking you for help. Just any color around what your response is, is it a price-driven response, is it a value-driven response? Any color as to how you are tackling that dynamic?

Sure, it’s a great question. So I mean SNL has a very sticky product. I think you are probably aware of that and we get asked repeatedly if we will build something like that. It will probably be a heavy lift for us and if we would have figured out where it is we wanted to focus our resources, that might not be the highest priority or the biggest opportunity. But if we can figure out a way to do that we certainly would consider it. I think they consider FactSet to be a better long-term partner and have a better product. They are not going to be happy about sort of being forced into something so, we will get asked on occasions for pricing reduction. We’re just seeing generally in banking not just with that, but there is a very heavy focus on cost. We just go back to trying to be a good partner for our clients, making good decisions for the long-term, and responding to them the best way that we can.

Great, and just a follow-up on your ETF product; could you just give us a sense of how investors should think about the net impact of higher inflows into passive investing? Obviously, you have an ETF product, but I am not sure what the critical mass of that product is, and then so that’s why I am just asking around the net impact to your business of higher movement into passive investing? Thank you.

Sure, I mean that’s a great question. So the ETF product itself has very detailed analytics around particularly EPS. Their holdings are best in class. It is a nice compliment to what FactSet has today. This shift from active to passive certainly doesn’t help underperforming active managers as the fees are much lower on the passive side. But what FactSet has is we are a workflow solution, so whether you are active or passive, we have analytics and portfolio analytics and reporting capabilities to help you. So we have the same solutions that we can sell to active managers that we can sell to passive managers, and in a lot of cases, some of our biggest clients will have strategies around both, although have a hybrid kind of a smart data type approach. So, we’re not just focused specifically on ETF; we’re focused on the entire workflow and where we can help that.

Great, thank you so much.

Good morning everyone. The question I've been getting this morning is one around the organic ASV growth and basically the question is where is it bottomed and what does it take to get it to reaccelerate? And you mentioned a couple of things already in terms of cost pressure, firm closures. When do we cycle through that and start to see the reacceleration?

If we knew, we’d love to tell you but we don’t. We are focused on the opportunity right in front of us. So we have a great suite of products. Like I said, we have great partnerships with our biggest clients and we feel that just versus our competitors we have a huge advantage. We have an excellent product, we have a great service team. We have a partnership with them; they trust us and we are just focused on executing the best we can every quarter and we’re really optimistic about our long-term opportunity.

So, a question on cost pressures that you have mentioned a couple of times; they seem like they have been part of the picture now since the financial crisis, and my question is what's changed, what's been driving the increased client focus? You highlighted the sell-side a couple of times; I want to know if you are also seeing that on the buy-side?

Sure, it's related to the last question on the buy side. The active managers are feeling pressure from the lower fees that passive managers are charging. So if you are an underperforming active manager, you’ve got to think about ways to sort of reduce costs. So we do see in overtime we’ll see some consolidation, I believe, on the buy side. Our focus on enterprise solutions and not being so highly leveraged to the workstation over time is the best strategy that we think we have as a company. We’re part of this; we’re a real technology company. We have technology solutions, we have solutions that help our clients be more efficient, and with focus on giving them the full breadth offerings that we have. Even if the number of workstations goes down in the entire industry, I’m just going to remind everyone FactSet has a small percentage of what’s out there, so our biggest competitors and we estimate have at least 300,000 terminals each. Forget about all the other niche players. So we’re focused on a multi-pronged strategy; getting more users, particularly in the front office, and then building out enterprise solutions to service the entire client.

Then our last question on the wealth management side; you guys have a nice product that’s been taking share of the high and ultra-high-net-worth side of the market, and my question is can you take that product down market at some point? Because obviously there are a lot more players in the lower end of the market?

So, it would be nice to be able to offer both for clients that service both. I’ll point to the technology investment that we’ve made with FactSet Web. Previously it would have been difficult for us to do that, but with our next-gen technology environment, we will be able to scale more easily, and do things faster. It’s going to allow us to go after that segment if we wanted to and have it be a profitable thing for FactSet to do.

Well, thank you very much.

Thank you.

Great, thanks, I appreciate the opportunity to ask questions. Look at the web version that you guys mentioned earlier, the desktop just a few moments ago. You have been offering for your customers to have one or the other or they be able to have both at no cost or both at an additional cost?

They could definitely have one or the other; we’re still evaluating the best go-to-market strategy. It’s just been released. What’s in there today is real-time news and quotes, research, some great company analytics, and some industry reports. We’re still putting in some of our other applications like universal screening, the new version of PA we have, which is PA3 that’s getting rolled out as we speak, so as we fill out the suite we’ll have a better hand to feel on that in the coming quarters.

Got you and then just a historical question for you. You know since the past 8 quarters your new user growth has been actually you know pretty good and obviously one of your strategies is to get deeper into your customers and especially be able to charge more for those, how long does it generally take from time when you acquire a user to perhaps when you're able to do the next iteration or kick into the next battle of use to create more revenue to the bottom line for you guys?

That really depends on the client. What we have found over time is when we close a client that we’re able to build a relationship and layer on analytics and fees and so on. It is pretty rare that someone comes in and gets everything all at once, but there are some re-variables there in terms of the types of clients, so it’s hard to give you a really easy answer.

Okay, thank you.

Thank you and good morning. Can you hear me? I am on a cell phone here.

Yes, we can hear you fine, Andre.

Great, thanks. So my first question, any expectations on the web product? Are there any expectations for the impact to growth or margins from the release of this? I am thinking on either the cost to the investment side and then is there any benefit to pushing existing clients on to the web-based product or is this simply you making sure that you have solutions for the full spectrum of customers?

Yes, I wouldn’t expect a massive impact right away, and it may be that there are some clients that are excited about going on to the web-based product. Its early days; it’s just been released. We have closed an exciting client on that; it’s something that I use every day. I really like using it, so I am really optimistic about what it means for us in the long term.

Got it. And last quarter you mentioned an unusual number of cancellations just due to consolidations and some other industry issues; just wondering was there any notable trend or how has that continued this quarter or has it gone more back to normal?

So we did say, as I mentioned earlier, we did see a little bit of an uptick on the firm closures versus the same quarter last year. But I want to take it back again to where the biggest opportunity and most of our revenue is in most of our growth opportunity. It’s not with sort of the smaller names that we’re closing, small wealth managers, small hedge funds; it’s really the bigger clients we are focused.

Okay, thank you.

Thanks, Andre.

Thank you, two questions. The first one, going back to the user growth which now looks pretty strong in the quarter. You alluded to wealth management, so I was just wondering what proportion directionally wealth management was of the user growth. And I think you also sort of alluded to lower pricing point on the wealth management so maybe that helps us reconcile somewhat the ASV acceleration. Can you help sort of help me think through that, what proportion of the growth from wealth management and the relative pricing?

We don’t break it out, but it certainly was the biggest contributor to the total, and we have a number of different packages for the wealth market, and they are typically given the size of the deployments and the use case, a lower price point than what we would charge in institutional asset manager or hedge fund. So you’re right; it’s a lower price workstation than the traditional FactSet workstation.

Any range of sort of the differential in pricing, anywhere to think about that?

The offering can range from sort of the low thousands all the way up to $10,000 in some cases for wealth. In our fully loaded investment management workstation with portfolio and analytics it could be multiples of that in some cases.

Okay, and then a different question, but the topic of corporate tax reform with the new administration, obviously a big topic for the market right now, but with your realignment, that you just announced and the benefit of the lower tax rate you’re getting, but really my question I guess at this point is, what proportion of your profitability now is in the U.S. and would potentially benefit from lower corporate tax rate because of the new Trump administration?

So right, this is Maurizio, so right now ASV internationally is 34.6% of the overall total. Our income that’s been taxed overseas is right around 30% to 31% now based on this realignment. Prior to that we were below 20%. What we’ve done here is really realign our structure operationally and also our financial structure to better match our international operations. So which means that almost 70% of our income is now taxed at the U.S. tax rate currently. If the tax rate changes and it goes down, there is a benefit to FactSet going forward.

Got it, that’s all I needed. Thank you very much.

Hi, thanks for indulging me in a follow up. Phil, I want to just ask you about CYMBA and the order management system. My kind of checks with clients are that one of the issues FactSet has had on the trading floor was getting over the lack of an order management system. How credible is the system that you bought and how much of a difference do you think it makes in terms of being able to sell onto the trading floor?

It's a great product, very focused on the UK market. You highlighted that it's a small company, but we were really impressed with the management team and the technology they have built. It's a long-term way, but again, it was a question of are we going to build it, or should we buy something that we believe was a really good product. So I think the longer-term opportunity for us when you think about the synergies is, with portfolio management, trading, the front office. FactSet has been in the front office for some time with portfolio managers at U.P.A., but if we can also compliment that with a portfolio management system or the management system and execution management system in the front office. We believe that that represents a really large opportunity for us just in terms of market share and help tie the enterprise story together nicely.

Okay, thanks.

And we're happy to offer you a demonstration of the product whenever you like.

I'll take you up on that.

Alright great. Okay, thank you all very much and we'll see you again next quarter.